Moody’s takes positive actions on Vietnamese banks

Moody’s Investors Service has today upgraded the long-term local and foreign-currency issuer ratings and long-term local-currency deposit ratings of five Vietnamese banks, and affirmed the same for the other 11 Moody’s-rated banks in Vietnam. Moody’s also upgraded the long-term foreign-currency deposit ratings of two Vietnamese banks, and affirmed the same for the other 14.

At the same time, Moody’s has upgraded the long-term Counterparty Risk Ratings (CRRs) and Counterparty Risk Assessments (CRAs) of eight banks and affirmed the same for the other eight. Finally, Moody’s has upgraded the baseline credit assessments (BCAs) and Adjusted BCAs of 12 banks and affirmed those for the other four.

The affected banks are: (1) An Binh Commercial Joint Stock Bank (ABB), (2) Asia Commercial Bank (ACB), (3) Ho Chi Minh City Development JSC Bank (HDBank), (4) JSC Bank for Foreign Trade of Vietnam (Vietcombank), (5) JSC Bank for Invstmnt & Developmnt of Vietnam (BIDV), (6) Lien Viet Post Joint Stock Commercial Bank (Lien Viet), (7) Military Commercial Joint Stock Bank (Military Bank), (8) Orient Commercial Joint Stock Bank (OCB), (9) Saigon – Hanoi Commercial Joint Stock Bank (SHB), (10) Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank), (11) Tien Phong Commercial Joint Stock Bank (TPBank), (12) Vietnam International Bank (VIB), (13) Vietnam JSC Bank for Industry and Trade (VietinBank), (14) Vietnam Maritime Commercial Joint Stock Bank (MSB), (15) Vietnam Prosperity Jt. Stk. Commercial Bank (VP Bank), and (16) Vietnam Technological and Comm’l JSB (Techcombank).

In the case of Sacombank, the outlook was changed to stable from negative. The ratings outlooks on the ratings of the other 15 rated Vietnamese banks remain stable.

The rating action reflects Moody’s expectation that the strong economic growth evident in Vietnam will support the asset quality and profitability of the banks. To capture these developments, Moody’s increased Vietnam’s Macro Profile to “Weak+” from “Weak”.

Please click here for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

The upgrade of the BCAs of 12 Vietnamese banks is driven by the higher Macro Profile, and also by these banks’ progress in writing off legacy problem assets.

UPGRADE OF BIDV, VIETCOMBANK, AND VIETINBANK’S BCAs

The upgrade in the banks’ BCAs largely reflects improvements in asset quality. Funding and liquidity for these banks are stable, a result of their relatively lower reliance on market funds.. At the same time, capital remains a weakness for all three.

UPGRADE OF ABB, ACB, MILITARY BANK, OCB, TPBANK, VIB AND TECHCOMBANK’S BCAs

The upgrade in these banks’ BCAs reflects improvements in their standalone credit strength, particularly progress in writing off legacy problem assets, and in the case of OCB, TPBank and Techcombank, a strengthening of their capitalization.

Moody’s expects profitability for these seven banks to improve over the next 12 — 18 months as the burden of credit costs reduces.

UPGRADE OF VP BANK’S BCA

The upgrade of VP Bank’s BCA takes into account its high profitability and strong capitalization, which offset the high credit risks from its consumer finance portfolio.

UPGRADE OF HDBANK’S BCA

The upgrade in HDBank’s BCA reflects improvements in the bank’s capitalization and profitability. At the same time, this rating action also takes into account the impending merger between HDBank and Petrolimex Group Commercial Joint Stock Bank (PGBank, unrated), a small private sector bank in Vietnam.

Based on the two banks’ financials for 2017, the key credit metrics of the merged entity, with the exception of asset quality, will be broadly similar to that of HDBank.

Moody’s calculates the proforma problem loan ratio of the merged entity — including loans under categories 2-5 of Vietnamese accounting standards, and gross bonds issued by the Vietnam Asset Management Company (VAMC) — to be at around 6.8%, while that of HDBank is 4.9%.

Post-merger, Moody’s expects the merged entity’s return on tangible assets to decline because of higher credit and operating costs. Moody’s expects funding and liquidity for the bank to remain stable.

AFFIRMATION OF MSB, SACOMBANK, SHB, AND LIEN VIET’S BCAs

The affirmation of MSB, SHB, and Lien Viet’s BCAs reflects Moody’s expectation that the banks’ credit profiles will broadly remain stable over the next 12 – 18 months.

The solvency of these banks is modest compared to that of other rated Vietnamese banks, but somewhat balanced by their funding and liquidity.

The BCA of Sacombank was affirmed because the bank still faces a significant risk from its problem assets, which exceeded 20% of total assets as of 30 June 2018.

The adjusted BCAs of all rated Vietnamese banks are at the same level as their BCAs as we do not factor in any affiliate support for these banks.

GOVERNMENT SUPPORT ASSUMPTIONS REMAIN UNCHANGED FOR ALL THE AFFECTED VIETNAMESE BANKS

Moody’s factors in the assumption of a “Very High” probability of government support in times of need into the ratings of the three government-owned banks — Vietcombank, BIDV, and VietinBank — and a “Moderate” probability of government support in times of need into the ratings of the remaining rated private sector banks.

Moody’s government support assumption is also driven by the relative systemic importance of these banks to the Vietnamese banking system as well as, in the case of government-owned banks, their ownership structures.

The upgrade of ACB, Military Bank, and Techcombank’s long-term local and foreign currency issuer ratings and long-term local-currency deposit ratings, as well as HDBank and OCB’s long-term local and foreign currency issuer and deposit ratings was driven by the upgrade in the banks’ BCAs.

Similarly, the upgrade in the long-term CRRs and CRAs of ABB, ACB, Vietcombank, Military Bank, TPBank, VIB, VP Bank and Techcombank was also driven by the upgrade in the banks’ BCAs.

The foreign currency deposit ratings of all rated Vietnamese banks are capped at B1, because Vietnam’s country ceiling for foreign currency deposits is B1.

OUTLOOK ON SACOMBANK’S RATINGS CHANGED TO STABLE

The outlook on Sacombank’s ratings was changed to stable from negative, to reflect its stabilized solvency profile and some progress in the recovery of problem assets.

WHAT COULD MOVE THE RATING UP

The long-term bank deposit and issuer ratings of these Moody’s-rated Vietnamese banks could be upgraded if the sovereign rating is upgraded and/or if the banks post improved standalone credit metrics that lead to higher BCAs.

WHAT COULD MOVE THE RATING DOWN

The long-term bank deposit and issuer ratings of these Moody’s-rated Vietnamese banks could be downgraded if the sovereign rating is downgraded. At the same time, the long-term ratings of Vietcombank, BIDV, and VietinBank could also be downgraded if Moody’s assesses that government support for these banks has weakened.

The BCAs of these Moody’s-rated Vietnamese banks could be downgraded if their financial fundamentals deteriorate significantly. If all other rating factors are constant, the BCAs would come under adverse pressure if the banks report significantly increased problem loan ratios or significantly reduced capitalization. A material deterioration in funding and liquidity could also be negative for the ratings.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

  1. An Binh Commercial Joint Stock Bank (ABB), headquartered in Ho Chi Minh City, reported total assets of VND88,586 billion ($3.84 billion) as of 30 June 2018.
  2. Asia Commercial Bank (ACB), headquartered in Ho Chi Minh City, reported total assets of VND309,968 billion ($13.45 billion) as of 30 June 2018.
  3. Ho Chi Minh City Development JSC Bank (HDBank), headquartered in Ho Chi Minh City, reported total assets of VND191,293 billion ($8.30 billion) as of 30 June 2018.
  4. JSC Bank for Foreign Trade of Vietnam (Vietcombank), headquartered in Hanoi, reported total assets of VND977,682 billion ($42.42 billion) as of 30 June 2018.
  5. JSC Bank for Invstmnt & Developmnt of Vietnam (BIDV), headquartered in Hanoi, reported total assets of VND1,268,267 billion ($55.03 billion) as of 30 June 2018.
  6. Lien Viet Post Joint Stock Commercial Bank (Lien Viet), headquartered in Hanoi, reported total assets of VND175,833 billion ($7.63 billion) as of 30 June 2018.
  7. Military Commercial Joint Stock Bank (Military Bank), headquartered in Hanoi, reported total assets of VND333,203 billion ($14.46 billion) as of 30 June 2018.
  8. Orient Commercial Joint Stock Bank (OCB), headquartered in Ho Chi Minh City, reported total assets of VND90,831 billion ($3.94 billion) as of 30 June 2018.
  9. Saigon – Hanoi Commercial Joint Stock Bank (SHB), headquartered in Hanoi, reported total assets of VND303,930 billion ($13.19 billion) as of 30 June 2018.
  10. Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank), headquartered in Ho Chi Minh City, reported total assets of VND400,686 billion ($17.39 billion) as of 30 June 2018.
  11. Tien Phong Commercial Joint Stock Bank (TPBank), headquartered in Hanoi, reported total assets of VND126,533 billion ($5.49 billion) as of 30 June 2018.
  12. Vietnam International Bank (VIB), headquartered in Hanoi, reported total assets of VND127,238 billion ($5.52 billion) as of 30 June 2018.
  13. Vietnam JSC Bank for Industry and Trade (VietinBank), headquartered in Hanoi, reported total assets of VND1,140,117 billion ($49.47 billion) as of 30 June 2018.
  14. Vietnam Maritime Commercial Joint Stock Bank (MSB), headquartered in Hanoi, reported total assets of VND123,299 billion ($5.35 billion) as of 30 June 2018.
  15. Vietnam Prosperity Jt. Stk. Commercial Bank (VP Bank), headquartered in Hanoi, reported total assets of VND293,112 billion ($12.72 billion) as of 30 June 2018.
  16. Vietnam Technological and Comm’l JSB (Techcombank), headquartered in Hanoi, reported total assets of VND300,405 billion ($13.04 billion) as of 30 June 2018.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Visit www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Read full press release from Moody’s here

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